New York Public Service Commission Clarifies REC and ZEC Obligations

LSE Obligation Deadlines Approaching

In August 2016, the Public Service Commission (“Commission”) issued the Clean Energy Standard Order to set the framework for accomplishing two goals: achieving 50 percent renewable generation by 2030 and preserving the economic viability of three zero-emissions nuclear power plants as a bridge to the clean energy future. To meet the first goal, the Commission directed each Load Serving Entity (“LSE”) to purchase Renewable Energy Credits (“RECs”) from new renewable sources built after January 1, 2015. LSE’s are required to meet their obligations in one of three ways: (1) by purchasing RECs from the New York State Energy Research and Development Authority (“NYSERDA”), (2) purchasing RECs from other eligible sources, or (3) making Alternative Compliance Payments (“ACPs”) to NYSERDA.

In order to maintain the economic viability (and operation) of New York’s upstate nuclear plants as a bridge to a low-carbon future, the Commission also established a Zero Emissions Credit (“ZEC”) program to subsidize the nuclear fleet, which is struggling to compete against low-cost gas generation. The ZEC program is structured similarly to the REC program, requiring LSEs to purchase ZECs, which recognize the zero-emissions attributes of nuclear power, proportionate to their annual energy sales. NYSERDA will contract with each eligible nuclear plant for ZECs, and each LSE will be required to purchase its pro rata share.

On November 17, 2016, the Commission issued an Order Providing Clarification regarding the LSE’s REC obligations. The Commission will require each LSE to procure a quantity of RECs equal to 0.035% of the LSE’s total 2017 load. The Commission’s order clarifies that the 0.035% target mandate relates only to the estimated number of RECs from renewable energy projects that were not in operation prior to January 1, 2015 that will be available to NYSERDA for sale to LSE’s during 2017. Based on that calculation, NYSERDA will offer 56,142 MWh of RECs for 2017 compliance at a price of $21.16/MWh. If a LSE intends to purchase RECs from NYSERDA during the 2017 compliance period, it must inform NYSERDA by December 1, 2016 and compete the REC request form using the confirmation ID supplied by NYSERDA.

Also on November 17, 2016, the Commission issued an Order Approving Administrative Cost Recovery, Standardized Agreements and Backstop Principles. The order established the system through which RECs and ZECs will be bought and sold. NYSERDA will build a purchase and sale platform and will enter into contractual relationships with each LSE to provide monthly REC and ZEC payments. The order also approved standardized REC and ZEC contracts established in the appendix. Each LSE must provide NYSERDA with executed agreements by December 17, 2016. Each LSE is also required to register an account in the New York Generation Attribute Tracking System (“NYGATS”) in order to transact RECs and ZECs, receive communications, and generate compliance reports for each annual compliance period.

With each LSE purchasing RECs and ZECs in the NYSERDA platform, the Commission hopes to move toward a 50 percent renewable generation goal while subsidizing nuclear base-load generation to avoid sharp increases in carbon emissions that could fill the generation gap if nuclear exited the market in the short term. In support of the Clean Energy Standard Order, the Commission recently approved the $110 million sale of the FitzPatrick nuclear power plant from Entergy to Exelon Corporation. While the 830 MW plant was scheduled to close due to low natural gas prices undercutting its competitiveness in the market, the Commission approved state subsidies (funded primarily via the sale of ZECs) and the sale to Exelon in order to keep the plant operational as a bridge until more renewable energy capacity is constructed. State approval is only the first step. Before the sale is finalized it must also be approved by the Nuclear Regulatory Commission and the Federal Energy Regulatory Commission.

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